tv Nightly Business Report PBS July 27, 2011 6:30pm-7:00pm PDT
>> there has to be a credible plan to reduce the debt burden, reduce the deficit level. >> susie: credit rating agencies warn of a downgrade of america's sterling rating. with just five days to go before the u.s. hits its credit limit, there are two competing plans in washington, but still no agreement. it's "nightly business report" for wednesday, july 27. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening everyone. my colleague tom hudson is off tonight. more debate and deadlock in washington today on the debt deal. house republicans are now scrambling to find more cuts after their plan fell $150 billion short of their $1 trillion goal. our washington bureau chief, darren gersh, brings us up to speed. >> reporter: after a blunt warning from their leaders to fall in line, some house republicans are doing just that, rallying behind house speaker john boehner's plan for a short- term extension of the debt
limit. >> let's go take what we can get in this, get the five yards, get the first down and fight the next battle. >> we are very mindful not only of the fact that we can't default on our obligations, but also that if we do not rein in on government spending, if you do not get that under control, that would also be a basis for a downgrade of our bond rating. >> reporter: but others still argue august 2 isn't a real deadline. >> they're trying to create some panic in the marketplace which simply shouldn't be there. >> reporter: markets are now anxiously watching dueling plans moving in the house and senate that share some features. both the boehner plan and the one developed by senate majority leader harry reid cap spending on many government programs. both plans create a special committee to propose further deficit reduction. but the reid plan extends the debt limit through the next election.
boehner's plan would require another debt limit vote in a few months, a prospect the white house says will hurt the economy. >> lets throw into doubt whether or not the united states is going to go into default around christmas, brilliant. >> reporter: it's also not clear either plan would prevent a downgrade of the nation's credit rating, though standard & poor's stressed to congress today that a default is different than a downgrade. >> changing a rating doesn't mean it would default. triple-a, all it means is that it is a low probability, a very low probability of a default. that's all it means. and if you change a rating, it means that the risk levels have gone up. it doesn't mean it's going to default. if it were to-- if you believe that, they would change it to a default status. >> reporter: what could a downgrade mean? it could eat up most of the savings congress has labored to produce-- $850 billion over ten years. darren gersh, "nightly business report," washington. >> susie: for more insights into the debt debate, we turn to two prominent washington economists: dean baker, co-director of the center for economic and policy research, and douglas holtz-
eakin, president of the american action forum and former director of the congressional budget office. close or how far apart are the two plans? dean, you first. >> i don't think they're hugely far apart. the biggest difference is that the reid plan would take you through the next election where as the pointer -- boehner plan we would have to see this between in six months. the real question is whether congress wants to do this again in six months or not. that's the biggest difference. >> susie: doug, what do you think? >> they're very close and in fact the c.e.o. took a look at the replan and didn't give him full credit, so i don't think he gets past the next elect either. so both sides are trying to do this in a timely fashion, their bills are similar and there's an opportunity to get
it done. >> susie: let's step back from the timetable and talk about the deals themselves. we're talking about a lot money here, kr 900 billion in savings in one plan, 2 trillion in the other plan, it's a lot of money, and as the american people try to size this up, are we making the right cuts? doug? >> these cuts are in the annual discretionary spending, they are not in the major entitlement programs, so they are only part of the program. 900 billion sounds like a lot, it nowhere close to the size of the underlying dealt problem. so this is a good start. it's a commitment to doing this now, and in the future. but it by no means address tess underlying problem that the rating agencies are worrying about. >> susie: dean, what do you think? >> these are actually substantial cuts in the discretionary portion of the budget, this is the budget that has infrastructure spending, education spending, a lot of what we think of as investment spending and we don't know where they're going to peculiar because is not specified. but i think it's likely to hurt. so given that we don't have a
deficit problem, we have an employment problem and economic growth problem, i think we're talking about the wrong issues. sds i know that you have that view, you've told us that before on the program. but looking at the deficit situation, dean, the begin of these conversations and these negotiations, there was talk about cutting social security, there was talk about tax reform, increasing taxes, neither one of those issues are in either one these deals. is that a failure of these debt talks? >> well, i think we shouldn't be talking about cutting social security because if anything it's inadequate. medicare is a health care problem, we should talk about fixing the health care system n. terms of the tax code you can't clean it up. i want it at the end of the day to be a revenue raiser, but you certainly could do a lot of things to fix the tax code. they weren't able to come to agreement on that. >> susie: doug, your thoughts on that, did we miss an opportunity here to cut social security and do something with taxes? >> it is an imperative that we
reform the entitlement program. these deals don't take that on. they do make a commitment to have special committees look at the entitlement programs, i would hospital those committees would take it seriously and propose the kind reforms that will make this a durable safe net and one that doesn't blow up the budget. >> susie: does this deal, either one of them, is it the right medicine for the economy, dean? >> well, the economy desperately needs additional stimulus, i know that's a dirty word, but you need demand from somewhere. and we have this idea that if we just do the right magic it will come from the private sector. it's not working and we have a great example. england has tried that, they just had the third consecutive quarter of basically zero growth, and i can't see anyone wanting to hold that up as a model for the united states. >> susie: doug, what do you think? do either one of these deals gel us closer to a stronger economy? i think the boehner deal is subject standingly -- substantively stronger. the issue is the concern dean
raised versus the fact that we are sailing toward a predictable financial crisis that will destroy hundreds of thousands if not millions of jobs. getting rid of that risk is good for the economy, and we would hope that it would grow more strongly in the future. >> susie: thank you so much, we appreciate your insights. >> thank you. >> thanks. z dean baker and douglas holtz-eakin, president of the american actions forum. that debt deal showdown in washington was the talk on "wall street," pushing stocks down for the fourth straight day. the dow tubmled 200 points, the nasdaq fell 75 and the s&p 500 lost 27. heavy volume on today's selling, with the big board trading over one billion shares, nasdaq volume 2.4 billion. the economy worsened in about half the country in recent weeks due to weak home sales and signs of a slowdown in manufacturing. a federal reserve survey out today shows seven of the fed's
12 bank regions reported slower growth. and in another sign of new weakness in the economy, the commerce department says there were fewer orders of aircraft, autos, heavy machinery and computers last month. orders for durable goods fell by 2%. >> reporter: i'm diane eastabrook in orion township, michigan. still ahead, i'll tell you how general motors plans to make money selling this small car with help from the u.a.w. >> susie: can you say $1,630 an ounce? that's the new record for gold prices set today, before the precious metals encountered selling. in new york trading, gold futures lost $2 to settle at $1,617 an ounce. but, as suzanne pratt reports, gold prices could continue to shine on. >> reporter: at morningstar's jewelers and pawnbrokers in hollywood, florida, business is sparkling. but, it's business from customers looking to sell or pawn their gold.
far fewer want to buy it, at least not the wearable kind. owner louis morningstar says the surging price of precious metals is a big temptation. >> they come to us as a bank. the banks aren't loaning money-- especially small loans. people come in here with their gold and their silver and walk out with several hundred or several thousand dollars. whether in florida or here in manhattan's famed jewelry district, people are looking to unload their gold. but, still many who want to invest in the yellow metal, and it's no wonder given this year's huge rally. since january, gold prices have surged 14%, rising more than $100 an ounce this month alone. gold continues to benefit from an uncertain global economy and europe's sovereign debt crisis. most recently, worries about a u.s. debt default have put even more shine on the precious metal. but, analyst jim steele expects
a near-term correction in gold. how extreme depends on what happens in washington with the deficit. >> if it's a stopgap measure, perhaps the correction in gold wont be very significant. if the agreement is more profound and long-lasting in nature, we could see a greater pullback in gold prices. gold fund portfolio manager tom winmill agrees gold will lose some of its luster in the short- term, but he sees the price hitting $1,800 an ounce by the end of next year. still, he believes the best value for investors today can be found in gold mining stocks. since january, this measure of gold mining shares, known as the gold bug index, is essentially unchanged. >> historically, over the last 30 or 40 years, gold stocks tend to move about twice as fast as gold bullion both on the upside and the downside. and, i think recently it's been all to the downside. i think they're due for a recovery. >> reporter: whether it's a recovery in gold shares or a continued rally in gold bullion,
expect more customers looking to cash in. suzanne pratt, "nightly business report," new york. >> susie: first it was chrysler, then ford. and today it was general motors' turn to kick off contract talks with the united auto workers union. chairman and c.e.o. dan akerson and u.a.w. president bob king shook hands at a gathering inside g.m.'s hamtramick assembly plant.
this is the company's first contract negotiation with the union since it emerged from bankruptcy two years ago. both sides pledged to work together during the talks. as diane eastabrook reports, that spirit of cooperation is helping g.m. launch one of its most significant products in decades. >> reporter: these workers aren't just building cars, they're reinventing general motors. the orion township, michigan, plant is making the chevrolet sonic, a $14,000 subcompact that will hit showrooms this fall. it's the first subcompact g.m. has ever built in the u.s. and the significance isn't lost on plant manager alicia boler- davis. >> it's very unique. we're the only ones doing it, and we have a commitment to be successful and do it here. >> reporter: a decade ago, g.m. probably wouldn't have even considered building the sonic in the u.s. because profit margins on small cars are razor thin.
g..m. will probably only make about $1,000 on each sonic it sells. it makes about ten times that much on sport utilities and pickup trucks. in order to make the sonic economically, g.m., in a sense, reinvented the wheel. the orion township plant-- mothballed during the company's bankruptcy-- played a key role. >> we've got about 4.5 million square feet, and because we were an existing facility and because we had lean operations going into the plant, we had available floor space that we were able to use. >> reporter: the additional space allowed some suppliers to set up shop inside the plant. that cut logistical and transportation costs for them and g.m. the company also took advantage of the two-tiered wage system negotiated in 2007 with the united auto workers union. 40% of the employees here are entry level, and those lower- paid workers shave about $200 off the sonic's production costs. carl montrosse works in the paint shop and is encouraged by how well the company and union are working together on this project. >> i think any manufacturing
company that wants to be competitive in a global market is going to have to come up with ways to reduce costs and build more cars for less. >> reporter: kristin dziczek is a labor relations expert at the center for automotive research. she thinks if the sonic is successful, other car companies could follow g.m.'s lead. >> a lot of the imports are, of course, coming from international manufacturers, but the domestic manufacturers are importing as well. ford's small car, the fiesta, for example, is made in mexico. fiat is building the 500 in mexico. so these are near-shore opportunities for small car production. >> reporter: it could take months for g.m. to know if the sonic is a hit with consumers, and if this experiment in orion township can pave the way for its future. diane eastabrook, "nightly business report," orion township, michigan. >> susie: a lot of "red" here at the new york stock exchange today as investors sold stocks on worries that lawmakers are still at odds on a debt deal. let's take a look at tonight's "market focus."
nearly all of the 30 stocks that make up the dow jones industrial average were lower. leading the stock sell-off? the industrial and information technology sectors. caterpillar led the way, off more than 3.5%, followed by cisco, down about the same. it fell in sympathy with rival juniper networks, which took a big hit on weak earnings. dow components alcoa and dupont also experienced heavy selling, both off more than 2.5%. but there was one star of the dow. it was boeing, thanks to solid earnings announced before the start of trading. profits rose 20%, coming in at a much-better-than-expected $1.25 a share. boeing benefited from strong performance at its commercial aircraft unit. boeing shares added 47-cents as the company raised its full-year earnings guidance for the second time.
looking at a one-year chart, the stock has declined about 8% in the past three months, but for the year it's still up about 2%. speaking of earnings, after the bell visa posted a 40% jump in fiscal third quarter profits. the credit card payment processor earned 1.26 a share, three cents ahead of analyst estimates. visa also this afternoon announced plans to buy back $1 billion dollars in stock. as you can see here, the stock ended the regular trading session at $87.75-- down $1.26. it moved in after-hours trading. investors were bullish on amazon.com, reacting to those strong second-quarter results we told you about last night. the stock surged almost 4% to $222. even though amazon reported a drop in quarterly profits, investors focused in on the retailer's robust revenues-- up 51%. we'll talk more about amazon in just a moment with tonight's "street critique" guest, hilary kramer. and on this day of big losses
for the major averages, investors were hungry for dunkin' donuts i.p.o. parent company dunkin brands debuted on the nasdaq, ticker symbol d-n-k-n. it priced at $19 a share, opened at $25 and closed the day at $27.85-- up $8.85 or 46.6%. and that's tonight's "market focus." its been a bumpy second quarter for corporate america, with cautious outlooks often outweighing strong results. but tonight's "street critique"
guest says she's found a few stand-out companies worth investing in. she's hilary kramer, editor of gamechangerstocks.com. hi hillary, nice to see you. can you hear me? >> yes. >> susie: okay. so let's start off by talking about your take away on second quarter earnings. >> well, it's been very interesting, it's gone from euphoria to depression. we've had our stocks like 3 m and cater pillar, netflix, juniper that have destroyed a lot of portfolios, but then we've had some real all-stars showing that even in a recessionary global environment, companies can still come out at the positive end. >> susie: you found quite a few companies that fit, that were shows standouts and you have two of them that you're going to talk about tonight. let's start with google. what do you like about google? what stood out for you? >> google, the most important salient point besides the fact
that revenue was up 32% and net income was up 34.5%, revenue was actually over 9 billion dollars, it was google's stock that impressed me so much. google plus is a social media site that's competing with facebook. and google plus continues to add subscribers in a viral way, even though it's invitation only. it's different than facebook in that a user can differentiate and decide who they want in a particular circle within their social circle, very easy to use. it's appealing, and let me tell you susie, it's going to knock out the competition who is trying to edge in there against facebook. >> susie: what will that mean for google stock? it's been trading in the $00 range where do you see it going? >> google could easily go to $700, and i won't take four quarters to get there, it might only take two or three because of the added benefits of the extra eyeballs that google plus will bring into
the formula. >> susie: let's talk about amazon. you heard that as we reported it had a great day today. why to you like amazon? >> amazon is coming out with a tablet that's going to compete with the ipad. and the apple ipad of they're going to take a big bite out of apple. and that is important, simply because amazon is selling a lot of peed yeah online, and what they can do is tie it right into the tablet for downloading purpose. but the other thing with amazon is that even though profit obviously were down 8%, the revenue was up 51%. now, profits were down because amazon keeps investing in the cloud. they provide cloud services, hosting services to clients. and this is a growing area of revenue. the other important point with amazon are these -- all over the world, for example in china they are building another two to add to
the nine, these are 35 kilometers away from shanghai and -- >> susie: i'm sorry to jump in, we're running shore on time here. it sounds fascinating and we also ran short that we can't even give you some of the viewer questions that you had a lot of them. but we'll hopefully talk to you next wednesday on those. but thanks so much. any disclosures on these two stocks? >> yes. i do not own either of them. amazon or google. >> susie: all right. thank you for coming on the program. if you have questions for hillary, you can e-mail us. our street critique guest tonight, hilary kramer with gamechanger.com. here's what we're watching for tomorrow: weekly jobless claims, june pending homes sales and second- quarter earnings from drug giants astra-zeneca and bristol- myers squibb, and dow components dupont and exxon-mobil. also tomorrow, our "kids and cash" series looks at ways to help your children make the connection between role-playing and earning a living.
the department of justice is reportedly investigating allegations that wells fargo discriminated against black borrowers. according to the huffington post, the bank is trying to negotiate a settlement to avoid a trial. the allegations mirror those made last week by the federal reserve and a separate lawsuit filed by the city of baltimore. in response to the article, wells fargo says it "has a strong commitment to serving all customers along the credit spectrum." another banking giant, u.b.s., has been sued by u.s. regulators. the swiss bank is accused of misleading fannie mae and freddie mac into buying mortgage debt that resulted in more than $900 million in losses. the lawsuit by the federal housing finance agency alleges that when u.b.s. sold more than $4.5 billion in residential mortgage-backed securities, the bank made misstatements as to the quality of the underwriting.
the kind of u.s. savings bonds many of us give as gifts are being phased out. tonight's "money file" explains the changes and what you can expect. here's karen gibbs, founder of the gibbs perspective. >> do you buy savings bonds for your children, grandchildren, nieces or nephews? well, starting january 1, 2012,
you'll have to do it online. the treasury department hopes the digital move will save as much as $70 million over the next five years by eliminating printing, mailing and financial middleman costs. series ee bonds-- sold at a 50% discount-- and series i bonds-- sold at face value-- pay a fair return without risk, with no state and local taxes, while offering significant federal tax benefits if used for college tuition or other qualified educational expenses. to get started, go to treasurydirect.gov and set up a free account. then you can buy, sell or convert savings bonds, enroll in a payroll savings plan or purchase a gift for a minor. you can also use the site to buy other government securities, such as t-bills, t-notes and inflation-protected securities. interest earned isn't taxed until you cash your bonds, so the longer you hold them the greater the benefit. make saving easy.
go online. i'm karen gibbs. >> susie: that's "nightly business report" for wednesday, july 27. i'm susie gharib. good night everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt ptioned by mecess group at wgbh access.wgbh.org >> be mo